Reducing Dependence on the Automotive Industry

1. The State of the Automotive Industry in 2025/2026

The German automotive industry is in a phase in which several pressures are converging: stagnating production, sharp declines in China, US tariffs, growing Chinese competition in Europe, a costly technological transition and regulatory uncertainty. For suppliers, this is the backdrop to every diversification decision.

Production: A Third Year at a Low Level

In 2025, 4.151.800 passenger cars rolled off production lines in Germany, 2 % more than in 2024, but 11 % fewer than in 2019. The VDA describes this as the third consecutive year in which domestic production has remained at roughly the same level. Passenger car exports, at 3.174.900 units, were unchanged from the previous year and 9 % below 2019.¹² In December 2025, the VDA had forecast a 1 % decline in production to 4,11 million passenger cars for 2026.¹³

Actual performance is weaker. From January to September 2026, 3.034.900 passenger cars were produced, 4 % fewer than in the same period of the previous year and 15 % fewer than in the same period of 2019. Exports fell by 4 % to 2.294.500 units. The decline in incoming orders from abroad is particularly pronounced: in September 2026, they were 16 % below the previous year, while total incoming orders were down by just over 13 %, even as domestic orders rose by 4 %.⁴

Electric mobility is a bright spot: in 2025, Germany produced around 1,22 million battery-electric passenger cars and ranks 2 worldwide in electric passenger car production, behind China.¹⁴ For suppliers of conventional powertrain components, however, precisely this shift is part of the problem.

BEV = battery-electric passenger cars. The VDA reports an “electric share” of 45,3 % for September 2026; this definition also includes plug-in hybrids and fuel-cell vehicles.⁴

Domestic Market: Smaller than Before the Pandemic, More Electric, More Chinese

According to the VDA, the German passenger car market in 2025 was around 21 % below its 2019 level.¹² In 2026, it is recovering slightly: from January to September, 2.221.798 passenger cars were newly registered, 5,3 % more than in the same period of the previous year.¹⁶ At the same time, the origin of vehicles is changing. From January to July 2026, China, with around 175.000 new passenger cars (+120,9 %), rose from rank 4 in the same period of the previous year to rank 1 among the most important countries supplying new passenger cars to Germany. Over the same period, exports of new passenger cars fell by 4,0 % in volume and 8,9 % in value.¹⁹ BYD recorded 6.040 new registrations in September 2026, 85,6 % more than a year earlier.¹⁶

Manufacturers: Sharp Earnings Declines and Lowered Forecasts

The profitability of German manufacturers determines how much pricing pressure reaches suppliers. In 2025, earnings at Volkswagen and Mercedes-Benz fell by more than half, while BMW's declined slightly; in 2026, all three revised their expectations downwards.

Mercedes-Benz intends to reduce global production capacity to around 2,2 million units and capacity in Germany to 900.000 units by 2028.²² In its ad hoc announcement of September 2026, Volkswagen also mentions the intended sale of Volkswagen Osnabrück GmbH.⁵ For suppliers, less capacity in Germany means lower volumes at their established plants, regardless of developments in the global market.

Trade: US Tariffs and a Sharp Decline in Exports

Since 1 August 2025, the US has imposed a tariff of 15 % on cars and automotive parts from the EU.²⁶ The European Commission describes this 15 % as a non-cumulative ceiling, explicitly including cars; the EU–US framework entered into force on 1 July 2026 following approval by Parliament and the Council.²⁷ In late April/early May 2026, the US President announced that the tariff on EU cars and trucks would be raised to 25 %; as of early May, this increase had not been implemented.²⁸ Whether it was subsequently implemented could not be confirmed from a US primary source by the editorial deadline.

The impact on exports is measurable. From January to November 2025, exports of motor vehicles and motor vehicle parts to the US fell by 17,5 % to 26,9 billion €.²⁹ In the first half of 2026, they were again 17,2 % below the previous year; total motor vehicle exports fell by 5,8 % to 124,7 billion €.³⁰ For new passenger cars exported to the US from January to July 2026, volume fell by only 2,6 %, but value fell by 17,1 %. At the same time, exports of electric cars slumped by 56,1 % and those of hybrids by 50,3 %, while exports of combustion-engine cars rose by 31,7 %.¹⁹

Supply Chains: Rare Earths and Chips

Two events in 2025 demonstrated the vulnerability of supply chains. In June 2025, the VDA warned that production delays and even production stoppages could no longer be ruled out because of Chinese export controls on rare earths.³¹ In autumn 2025, the crisis surrounding chip manufacturer Nexperia followed: after the Netherlands placed the company under state control in September 2025, China halted exports. Bosch subsequently announced short-time working in Salzgitter and Ansbach.³² From 8 November 2025, China again eased exports for civilian purposes.³³ In April 2026, according to ifo, 9,3 % of automotive companies reported shortages of intermediate inputs.³⁴

Regulation: The Combustion-Engine Phase-Out Is Being Watered Down, but No Decision Has Yet Been Taken

On 16 December 2025, the European Commission proposed requiring only a 90 % reduction in tailpipe emissions from new passenger cars from 2035, instead of 100 %. The remaining 10 % would be offset through green steel produced in the EU, e-fuels or biofuels.³⁵ As of October 2026, the proposal has not been adopted; the vote in the European Parliament's Transport Committee scheduled for 5 October was postponed.³⁶ For suppliers of internal combustion engine components, this may extend the phase-out period, but it does not change the direction of travel.

Sentiment and outlook

The ifo business climate indicator for the automotive industry fell to −35,0 points in September 2026, from −22,0 in August. Companies assessed their situation as worse than at the previous annual low in June and July; export and employment expectations declined.¹⁸

The VDA now expects the industry to have around 225.000 fewer jobs on a net basis by 2035 than in 2019. According to VDA calculations, around 100.000 of these have already been lost; using a different scope, EY puts the figure at 125.800 by the end of March 2026 (Chapter 2). The Prognos study for the VDA from 2024 still put the figure at around 190.000.^2,37 A study by Fraunhofer IAO commissioned by employers' associations calculates that, under the strictest regulatory scenario, around 726.000 of the 1,6 million jobs in powertrain production in Europe will be lost by 2040, equivalent to 45 %.³⁸

2. Suppliers under pressure

Suppliers are at the end of the chain: they are the first to feel declining call-offs, pricing pressure and insourcing by manufacturers, and have the smallest margin buffers. The data on employment, insolvencies and investment show that they face the greatest pressure to adjust.

Employment: the industry's sharpest decline

Official statistics report manufacturers of motor vehicle parts and accessories (economic sector 29.3) separately. Average annual employment in this sector was 237.221 in 2025, 11,1 % lower than the 266.810 recorded in 2024.¹⁷ By the end of the first half of 2026, employment had fallen to 219.500, a decline of 7,6 % within one year and thus the sharpest among the three subsectors. Employment at motor vehicle manufacturers fell by 6,1 % to 429.200; only the bodies, superstructures and trailers segment grew, by 10,0 % to 42.800.¹

Scope: The Destatis figures cover establishments with 50 or more employees. Large portions of the workforces of groups such as Bosch or ZF are statistically assigned to other economic sectors. The actual number of people dependent on the automotive business is therefore higher than the figure for economic sector WZ 29.3.

EY's analyses based on official data show the scale across the industry as a whole: around 32.000 jobs were lost in the twelve months to the end of the first quarter of 2026, and a total of 125.800 since 2019, equivalent to one in seven jobs in the industry.³⁹ In the full year 2025, employment fell by almost 50.000 jobs, a decline of 6,5 %.⁴⁰

The major workforce reduction programmes

The programmes announced by the major suppliers show that workforce reductions are not yet complete. Many run until 2028 or 2030.

The programmes partly overlap and cannot be added together. In 2025, Bosch recognised provisions of 2,7 billion € for structural measures; Bosch Mobility's EBIT margin fell to 1,8 %.⁴⁹

Insolvencies: high numbers, low rescue rate

Restructuring adviser Falkensteg counted a total of 471 major insolvencies among companies with revenue of more than 10 million € in 2025, 25 % more than in the previous year. Automotive suppliers ranked 2 with 59 cases, behind metal products manufacturers. For 2026, Falkensteg expects a further increase of 10 to 15 % among suppliers.⁵⁰ In the second quarter of 2026, suppliers accounted for 12 major insolvencies, again ranking 2.⁵¹

The audit and consulting firm RSM Ebner Stolz counts companies of all sizes: from the beginning of 2024 to mid-2026, there were 333 insolvency proceedings involving automotive suppliers, almost 70 % of them at companies with revenue of less than 20 million €.⁵² An example of a larger case is locking systems manufacturer Kiekert, which filed for insolvency in September 2025 for its headquarters in Heiligenhaus, with around 700 employees.⁵³

The rescue rate is important for any strategy: according to a Falkensteg analysis, 32,2 % of insolvent suppliers were rescued in 2025, compared with 20,3 % in 2024. In 2020, the rate was still 64,3 %.⁵⁴ Companies that wait until insolvency to seek new markets have significantly poorer prospects than a few years ago.

Margins: Europe at the lower end

The Global Automotive Supplier Study by Roland Berger and Lazard found an average EBIT margin of 4,7 % for 2024 (2023: 5,3 %) across 600 suppliers. European suppliers, at 3,6 %, were significantly below Chinese suppliers at 5,7 %.⁵⁵ In BCG's 2026 supplier study, only 21 % of the managers surveyed expect the industry's situation to improve, while 53 % expect it to deteriorate.⁵⁶ PwC Strategy& puts the revenue of the largest suppliers at 1.153 billion € for 2024 and 1.119 billion € for 2025.⁵⁷

Investment is moving abroad

The VDA's surveys of medium-sized automotive companies show that many companies are increasingly planning their future outside Germany:

Of the companies cutting jobs in Germany in January 2026, 49 % were simultaneously adding jobs abroad; none of the companies surveyed relocated capacity from abroad to Germany.⁵⁹ According to the VDA, the share of the industry's research and capital investment undertaken abroad rose from 47 % (2018) to 55 % (2024).¹⁴

Financing is also becoming more constrained. In Roland Berger's 2026 automotive SME survey, more than 70 % of companies depend on bank loans, and almost 95 % expect significant consolidation in the industry over the next five years.⁶¹ In an Allensbach survey for FTI-Andersch, 28 % of suppliers reported increasingly difficult access to financing.⁶² 17 % are already feeling the effects of insourcing by manufacturers, and a further 38 % expect it to increase.⁶³

What this means for diversification: Time and capital are scarce. Moving into another industry takes years (see Chapter 12) and must be financed by a business that is itself under pressure. Companies seeking to diversify should begin while their core business can still sustain them.

3. Diversification: intention and reality

Almost all surveys show a strong willingness among suppliers to enter new industries. However, the figures vary considerably because different questions were asked. And there is still a large gap between intention and revenue.

What the surveys measure

The figures are not comparable. They differ in terms of the questions asked, the population surveyed and the timing. FTI-Andersch cites 75 % in the page text and 79 % in the page description; the sample is small, at 47 suppliers.⁶³

Despite their limited comparability, all recent surveys indicate a strong willingness to diversify. No robust time series is available.

Which industries suppliers are targeting

In the Roland Berger survey, nearly two-thirds of executives see the best revenue opportunities in the defence sector, followed by medical technology (38 %) and aerospace (36 %).³ The Allensbach survey for FTI-Andersch asked where the affected suppliers are already active or investing:

Motivations and existing strengths

The motivations are defensive: according to Roland Berger, two-thirds of respondents want to reduce their dependence on the automotive business cycle, while more than 60 % hope to achieve greater resilience. 46 % consider diversification the best route to new growth areas, and 31 % hope to improve capacity utilisation at their plants.^3,67 In the Allensbach survey, 47 % want to become less dependent on domestic manufacturers, and 34 % avoid exclusivity commitments.⁶³

Suppliers primarily cite electronic components (78 %), mechanical components (71 %), drive and energy modules (64 %) and software (48 %) as starting points for approaching customers in the defence sector.³ This list aligns well with the items in short supply in energy, grids, data centres and defence (Chapters 5 to 10).

The barriers from companies' perspective

Establishing suitable sales structures and customer networks and complying with political and regulatory frameworks are each cited as challenges by 52 %, particularly with regard to the defence sector.³ FTI-Andersch identifies new approval procedures, different product cycles and unfamiliar customer expectations as the main barriers to entering another industry.⁶² Chapters 12 and 13 examine these barriers in detail.

The reality: considerable intent, little revenue

One in two companies surveyed by Roland Berger is already active outside the automotive industry, but usually generates only a small share of revenue there.³ The share is small even among the major companies: at ZF, defence technology accounts for less than 0,5 % of group revenue.⁶⁸ According to its CEO, Schaeffler generates around 100 million € in the defence sector⁶⁹, compared with group revenue of 23,5 billion € in 2025.⁷⁰

The broadest measurement is provided by DIHK. In a special question in its economic survey of nearly 5.000 industrial companies at the beginning of 2026, 17 % considered themselves part of the defence industry's value chain: 2,5 % manufacture military goods, 6,9 % dual-use goods, and 7,6 % are suppliers. A further 12,3 % consider the market attractive. Companies in this value chain are significantly more optimistic about the future: their expectations balance stands at +11 points, compared with −9 in the rest of industry.⁷¹

Caution is warranted regarding the frequently cited DIHK figure for vehicle manufacturing: 36 % of establishments in this sector are involved in the defence value chain.⁷¹ Under the official classification of economic activities, however, vehicle manufacturing also includes manufacturers of military combat vehicles, as well as shipbuilding and aircraft manufacturing. The figure therefore does not represent a proportion of automotive suppliers.

The transition has also been limited so far in terms of personnel. According to a study by the Institut für Arbeitsmarkt- und Berufsforschung (IAB), only around 1.100 employees moved from other industrial sectors into the armaments industry last year, plus 1.400 from other sectors of the economy. At the same time, industry is currently losing around 15.000 jobs per month.⁷² IAB expects employment in the production sector excluding construction to fall by 160.000 in 2026 and by a further 130.000 in 2027; higher defence spending would primarily benefit the armaments industry and its supplier sectors.⁷³

Interim conclusion: For most suppliers, diversification supplements rather than replaces the automotive business. Even optimistic targets such as Schaeffler's aim of generating up to 10 % of revenue from new growth areas by 2035⁷⁴ illustrate the scale involved. The decisive factors are starting early enough and choosing an industry that genuinely matches the company's capabilities.

4. Overview of target industries

The following overview summarises Chapters 5 to 10. It links documented market data with the requirements that suppliers must meet and the capabilities in demand in each industry.

The “Assessment” column represents the publishers' assessment based on the data documented in this study, not a market forecast. Evidence for the entry requirements is provided in Chapters 5 to 10 and 12.

5. Defence and security

No other industry has received such strong political support since 2025. The market is attractive for suppliers, but structured differently from the automotive business: smaller unit volumes, longer payment processes, government control and strict confidentiality.

Budget and political framework

On 18 March 2025, the Bundestag adopted an amendment to the Basic Law, approved by the Bundesrat on 21 March: defence spending exceeding 1 % of gross domestic product has since been exempt from the debt brake.^86,87 At the same time, the amendment established the basis for a special fund for infrastructure and climate neutrality of 500 billion €.^86,88

According to the Ministry of Defence, around 108,2 billion € is available to the Bundeswehr for 2026: 82,69 billion € under budget section 14 and 25,51 billion € from the Bundeswehr special fund. For 2029, the financial plan provides for around 152 billion € for the Ministry of Defence's budget. Together with defence-related expenditure by other ministries, the NATO spending ratio of 3,5 % of GDP is to be reached as early as 2029.⁷ The government's draft for 2027 provides for 139,6 billion €, comprising 109,7 billion € under budget section 14 and 29,9 billion € from the special fund. More than 60 billion € is earmarked for procurement, compared with 45 billion € in 2026. The draft has not yet been adopted.⁷⁵

At the NATO summit in The Hague on 25 June 2025, the Allies committed to spending at least 3,5 % of GDP annually on core defence by 2035, and up to 1,5 % on defence-related expenditure such as infrastructure.⁸⁹ At EU level, Member States are to mobilise around 800 billion € for defence under ReArm Europe/Readiness 2030; this includes the SAFE loan instrument of 150 billion €, adopted by the Council in May 2025.⁹⁰

Procurement legislation has also been amended. On 15 January 2026, the Bundestag adopted the Act on Accelerated Planning and Procurement for the Bundeswehr, whose simplifications are intended to apply until the targeted full defence readiness is achieved.⁹¹ The Procurement Acceleration Act adopted by the Bundestag on 23 April 2026 raises the threshold for direct federal contracts to 50.000 €.⁹²

The customers: full order books

According to the Bundestag's Lobbying Register, the industry association BDSV had a total of 472 members on 1 January 2026.¹⁰⁰ Current official figures for revenue and employment across the entire German security and defence industry are not available; the industry is not classified as a separate sector in economic statistics.

How the transition from the automotive sector is progressing so far

The most visible transitions to date involve personnel programmes and the repurposing of entire plants. Defence revenues generated by traditional suppliers in their own right remain small (Chapter 3).

The frequently cited case of KNDS Görlitz is not an example involving an automotive supplier: KNDS is taking over a former Alstom rail plant there; approximately 580 of the roughly 700 employees are to remain employed by KNDS or Alstom.¹⁰⁹

Requirements suppliers must meet

• Quality management under AQAP. AQAP 2110 contains the requirements of ISO 9001, supplemented by additional NATO requirements.¹¹⁰ The BAAINBw specifies the quality requirements in the contract; on-site government quality assurance is carried out by a regional office of the Centre for Technical Quality Management, without relieving the contractor of its responsibility.¹¹¹ According to e-mobil BW, the additional effort remains manageable where a mature ISO 9001 system is in place.⁸
• Protection of classified information. As a rule, companies are admitted to the Federal Ministry for Economic Affairs' industrial security oversight programme only on the recommendation of a contracting authority handling classified information.¹¹² A facility security clearance requires, among other things, authorised legal representatives and an appointed security officer.¹¹³ Access therefore depends on securing an initial contracting authority.
• Authorisations. Anyone wishing to manufacture weapons of war requires authorisation under Section 2 of the War Weapons Control Act.¹¹⁴ The export of defence equipment on the Export List requires authorisation under Section 8 of the Foreign Trade and Payments Ordinance.^115,116

The limitations of the defence market

Unit volumes are small. According to e-mobil BW, defence contracts typically involve low two- to three-digit batch sizes; contract awards, manufacturing and payment often extend over several quarters or years. The Bundeswehr's new-build programmes envisaged or envisage approximately 50 Leopard 2 tanks per year (since 2022) and 35 Puma vehicles per year (until 2021). Ammunition is an exception: Rheinmetall plans to produce up to 1,1 million artillery shells per year from 2027.⁸ More capital is tied up: in 2022, the cash conversion cycle was 159 days in the aerospace and defence industry, compared with 94 days in the automotive industry.⁸

Even defence offers no protection against poor investments. e-mobil BW cites Urban Gruppe, a manufacturer of armour steels, which filed for insolvency in April 2025 because orders were insufficient to support its investments.⁸ Börsen-Zeitung summarises the trade-off: lower unit volumes alongside higher quality standards, approval procedures and export controls, in return for better margins and long-term offtake agreements.¹¹⁷ Werner Olle, who analysed 150 defence industry suppliers for Automotive Thüringen, says defence is “not the only lifeline”.¹¹⁸

6. Aerospace

The aviation industry is growing, with full order books and supply chain bottlenecks. Nevertheless, it remains one of the most demanding markets for suppliers: low unit volumes, very long product life cycles and a distinct quality framework.

Market

According to the industry association BDLI, the German aerospace industry generated revenue of €62 billion in 2025, 19 % more than in the previous year (€52 billion). Employment rose to around 130.000 (previous year: 120.000), while exports accounted for 66 %. Civil aviation generated €45 billion (+15 %), military aviation €13,5 billion (+35 %) and the space sector €3,5 billion (+17 %). The BDLI explicitly identifies fragile supply chains as a challenge.⁷⁶

Airbus delivered a total of 793 commercial aircraft in 2025 and had a record order backlog of 8.754 aircraft at year-end. Around 870 deliveries are planned for 2026.¹¹⁹ In the first half of 2026, deliveries totalled 351 aircraft (previous year: 306); the annual target was confirmed.¹²⁰ The ramp-up of the A320 family to a rate of 70 to 75 aircraft per month is expected by the end of 2027. Airbus cites outstanding engine commitments from Pratt & Whitney as a constraint.¹¹⁹ Demand is therefore present; the bottleneck lies in the supply chain.

How it differs from the automotive business

• Unit volumes: Around 3.200 civil aircraft were delivered worldwide in 2024, compared with around 78 million new passenger car registrations. For suppliers, this means one-off and small-batch manufacturing rather than high-volume production.⁷⁷
• Documentation: Manufacturing records often have to be retained for more than 30 years; a car model typically has a production run of 6 to 8 years.⁷⁷
• Quality management: EN 9100 builds on ISO 9001 and is mandatory for direct suppliers to manufacturers and Tier 1 suppliers, as well as for manufacturers of safety-critical parts; ISO 9001 may suffice for non-safety-critical parts.⁷⁷ Airbus requires suppliers to comply with EN 91xx standards and to hold Nadcap accreditation for special processes.¹²¹ Nadcap is an industry-led accreditation programme run by the Performance Review Institute, with 24 programmes for critical processes.¹²²

Who it suits: Suppliers with precision machining, lightweight construction or certifiable special processes (heat treatment, surface treatment, welding) that can accommodate small batches and long qualification periods. Military aviation is currently showing the strongest growth.⁷⁶

7. Energy, grids and heating

The energy transition requires components in large quantities, and many of these are in short supply. For suppliers with experience in power electronics, thermal management, casting, sheet metal processing and series production, this is the field with the greatest volume.

Electricity grids: investments in the hundreds of billions

In the first draft of the Electricity Grid Development Plan 2037/2045, the four transmission system operators expect total investment of €360 to €390 billion by 2045, depending on the scenario. They attribute the cost increase partly to shortages of technical components and services in the market.⁷⁸ The Federal Network Agency considers 118 of the 159 proposed measures eligible for confirmation; up to eight additional offshore grid connection systems will be added by 2037.¹²³

Lead times illustrate how scarce these components are. Siemens Energy currently quotes 18 to 36 months for high-voltage power transformers and 6 to 12 months for medium-voltage transformers. Siemens Energy is investing around 220 million € in its transformer plant in Nuremberg. According to Hitachi Energy, Europe produces only around 35 % of its own electrical steel requirements. According to service provider BKW Infra Services, instrument transformers and disconnectors are also in short supply; switchgear faces the additional requirement of being SF6-free.⁷⁹

Battery storage adds to this demand: according to a BDEW survey of grid operators, grid connection requests for large-scale battery storage systems rated at 1 MW or more total over 720 GW; connections have been approved for at least 78 GW.¹²⁴

Wind energy: record approvals

In 2025, 958 new onshore wind turbines with a capacity of 5.232 MW were commissioned, 58 % more capacity than in the previous year. Approvals were granted for 3.310 turbines with a capacity of 20.765 MW, an all-time high. At the end of 2025, 29.226 onshore turbines with a capacity of 68.067 MW were installed; around 12.600 MW are no longer eligible for EEG remuneration, and the average age is 15,5 years.¹²⁵ This points to a growing market for new installations, repowering and services.

Heat pumps: growth dependent on subsidies

In 2025, 299.000 heat pumps for space heating were sold in Germany, 55 % more than in the previous year. For the first time, heat pumps accounted for almost half of all heat generators sold.¹²⁶ In the first half of 2026, sales reached 195.000 units, around 40 % more than in the same period of the previous year.¹²⁷ According to the industry association, the sector employs around 100.000 people.¹²⁸ The market is heavily dependent on government subsidies. The governing coalition has pledged to maintain the subsidy programme reliably until 2030, a commitment the association expressly welcomes.¹²⁷

Hydrogen: still a niche market

According to EWI Köln, electrolysers with a capacity of 181 MW are installed in Germany; a further 1,3 GW have reached an investment decision or are under construction. EWI considers it likely that the target of 10 GW by 2030 will be missed.¹²⁹ For suppliers entering this field (Chapter 11), it is a market of the future with high project risk.

Who it suits: Manufacturers of power electronics, cooling and thermal management systems, housings, castings and sheet-metal parts, cables and connectors. Grid operators procure through qualification systems (Chapter 13); approval takes time, but volumes can be planned over the long term.

8. Railway technology

The railway industry is experiencing an order boom, driven primarily by infrastructure. Market entry is strictly regulated by standards and product qualifications.

Market

According to Verband der Bahnindustrie (VDB), the railway industry in Germany generated revenue of 15,6 billion € in 2025, more than ever before. Domestic revenue rose by 7,7 % to 9,8 billion €. Order intake grew by 19 % to 21,8 billion €, with infrastructure orders increasing by 36 %. The sector directly employs around 57.700 people, or around 114.000 including indirect employment. In signalling and control technology, more than 4.200 interlocking control units were installed in 2025, compared with an average of around 2.500 in previous years; DB InfraGO expects an increase of more than 50 % in 2026. The domestic rolling stock business, by contrast, continues to fall short of expectations.⁸⁰ VDB puts the export share at 40 %.¹³⁰

The ramp-up is also being financed through the Special Fund for Infrastructure and Climate Neutrality: 500 billion € over twelve years, including 300 billion € for the federal government, 100 billion € for the federal states and municipalities combined, and 100 billion € for the Climate and Transformation Fund.⁸⁸ According to an analysis by Allianz pro Schiene, the federal government invested 222 € per capita in rail in 2025 (2024: 198 €); however, a reduction of 1,3 billion € is planned for 2027.¹³¹ On 6 October 2026, the Ministry of Transport presented DB InfraGO with an infrastructure plan containing measures for the next five years.¹³²

Requirements

• ISO 22163 (IRIS): The railway industry's quality standard has been a fully fledged international standard since July 2023; the former designation ISO/TS 22163:2017 is obsolete. The new certification procedure has applied since 1 April 2024.¹³³
• EN 15085-2: Companies welding railway vehicles or their components require certification; the highest class, CL1, applies to components with high safety relevance.¹³⁴
• Deutsche Bahn's manufacturer-related product qualification (HPQ): DB uses this to ensure that only qualified manufacturers supply it directly or indirectly.¹³⁵

Who it suits: Suppliers with certifiable welding expertise, electronics, connectors and housings, particularly for infrastructure and signalling and control technology, where growth is currently strongest.

9. Medical technology

The medical technology sector is characterised by medium-sized companies, strong exports and steady growth. In the Roland Berger survey, it is the second most frequently cited target sector for suppliers after defence (38 %), but it is a world of its own in regulatory terms.³

Market

In 2024, 1.508 medical technology manufacturers with 20 or more employees in Germany generated revenue of 41,4 billion €; 93 % of the companies are small and medium-sized enterprises. For 2025, industry association SPECTARIS expected an increase of around 3 % to 42,6 billion €.⁸¹ These establishments employed around 165.900 people in 2024, and the export share was 68,1 %.¹³⁶ Including smaller establishments, the figures are significantly higher; the figure of more than 210.000 employees comes from the Health Economy Accounts.⁸¹

In industry association BVMed's autumn 2026 survey of 120 companies, respondents expect revenue growth of 3,9 % in Germany for 2026. At the same time, 45 % expect profitability to deteriorate, and 27 % are relocating investment abroad. One third of investment in research and development goes towards compliance with the Medical Device Regulation (MDR); 62 % of companies prefer the FDA's US approval system, while only 9 % prefer the European system.¹³⁷

Requirements, time and costs

The MDR requires manufacturers' quality management systems to cover the selection and monitoring of suppliers and subcontractors.¹³⁸ Regulatory responsibility remains with the manufacturer, but suppliers are subject to its controls. A study by Hochschule Pforzheim quantifies the effort and time required for market entry:

Source: Hochschule Pforzheim, April 2025.⁸²

For existing products still certified under the previous legislation, the extended MDR transition periods expire on 31 December 2027 (class III and implantable class IIb devices) or 31 December 2028 (other class IIb and IIa devices, as well as sterile class I devices and class I devices with a measuring function).¹³⁹

Who it suits: Plastic injection moulding, precision parts and electronics manufacturing with cleanroom or documentation experience. Entry as a component supplier is faster and less expensive than developing an own medical device.

10. Data centres, semiconductors, robotics

Three fields with very different conditions: data centres are growing rapidly and need cooling and power supplies. New semiconductor plants create demand in specific locations. Mechanical engineering, by contrast, is itself in crisis.

Data centres: cooling as a bottleneck

According to Bitkom, the power capacity of all German data centres increased by 9 % to 2.980 MW in 2025; it is expected to reach 5.000 MW by 2030. Capacity for artificial intelligence applications is expected to grow from 530 MW to 2.020 MW. In 2025, 12 billion € was invested in IT hardware and 3,5 billion € in buildings and technical building services, including around 2,5 billion € in climate control technology, power supplies and other building systems. In Frankfurt alone, new projects totalling more than 1.800 MW are planned.⁸³ As power density increases, so does the need for liquid cooling and efficient power supplies, and thus for expertise from electric vehicle thermal management.

Semiconductors: new plants in Dresden

Infineon opened its Smart Power Fab in Dresden in July 2026; at 5 billion €, it is the largest single investment in the company's history and provides around 1.000 direct jobs. The power semiconductors manufactured there are intended for power supplies for AI data centres, renewable energy, electricity grids and software-defined vehicles.⁸⁴ ESMC, the joint venture between TSMC, Bosch, Infineon and NXP, is building a plant in Dresden for around 10 billion €, supported by 5 billion € in state aid; production is scheduled to begin in 2027.⁸⁵

Mechanical engineering and robotics: not an alternative market at present

Mechanical engineering is often cited as a natural target for automotive suppliers. At present, it is itself weak: VDMA expects a real production decline of 2 % in 2026, the fourth consecutive year of contraction. From January to July 2026, production was 4,1 % below the previous year's level; however, order intake rose by 5 %, and the association expects an increase of 3 % for 2027.⁹ By 30 June 2025, the latest available reporting date in this series, employment had fallen to around 1,01 million in companies with more than 50 employees.¹⁴⁰ In agricultural machinery, revenue from German production rose by 2 % to 11,3 billion € in 2025, while exports to the USA fell by 28 %.¹⁴¹

Humanoid robots are a field of the future. Schaeffler supplies actuators and has signed contracts for this purpose with Neura Robotics and British manufacturer Humanoid (Chapter 11). Volumes are still small today.

11. Case studies: how suppliers are approaching the transition

The examples illustrate four approaches: a complete exit from the automotive business, the acquisition of an industrial business, the transfer of a core technology to a new application, and the conversion of entire plants. All information is drawn from company announcements or reputable media reports.

Kendrion: complete exit

In 2024, Kendrion agreed to sell its automotive business in Europe and the USA to Solero, representing around 210 million € in revenue and approximately 80 % of automotive revenue¹⁴²; the sale was completed in February 2025.¹⁴³ Following the sale of its Chinese business in October 2025, Kendrion describes itself as a pure-play industrial motion control company: 245,5 million € in revenue from continuing operations in 2025, with a normalised EBITDA margin of 15,5 %.¹⁴³

Approach: exit and focus

Stabilus: growth through acquisition

Stabilus increased the industrial share of its revenue from 33 % (2014) to 40 % (2024) and to 46 % in the first half of the 2025 financial year. By 2030, Stabilus aims to increase group revenue to up to 2,0 billion €; the industrial and automotive businesses are then intended to be balanced. In addition to technology transfer, acquisitions contributed to this increase; acquisitions since 2016 account for around one fifth of revenue.¹⁴⁴

Approach: acquisition

Schaeffler: robotics and defence

Schaeffler generated group revenue of 23,5 billion € in 2025 and aims to generate up to 10 % of its revenue from new growth areas by 2035, primarily humanoid robotics and defence.⁷⁰ It has a technology partnership with Neura Robotics for actuators up to 250 Nm¹⁴⁵; British manufacturer Humanoid has selected Schaeffler as its preferred supplier for more than half of its joint actuator requirements for wheeled platforms through 2031.¹⁴⁶ Schaeffler is also developing PEM electrolysis stacks ranging from 50 kW to 1 MW.¹⁴⁷

Approach: technology transfer

Bosch: acquisition in the climate control market

On 31 July 2025, Bosch completed the largest acquisition in its history: Johnson Controls' heating, ventilation and air conditioning business for residential and light commercial buildings, along with the Johnson Controls-Hitachi joint venture, for 8 billion US dollars (7,4 billion €). This brings the Home Comfort division to more than 8 billion € in revenue and more than 25.000 employees.¹⁴⁸

Approach: acquisition

MAHLE: cooling for data centres and energy storage

MAHLE is developing a liquid cooling system for an Infineon power module used, among other applications, in data centre power supplies; the prototypes were developed in four months. Its non-automotive business is consolidated in the “Industrial and Special Solutions” division.¹⁴⁹ For stationary battery storage systems, MAHLE has received an initial series production order for a cooling module with a capacity of up to 42 kW, with series production starting in 2026.¹⁵⁰

Approach: technology transfer

ElringKlinger: fuel cells beyond passenger cars

Its subsidiary EKPO offers fuel cell stacks for special-purpose vehicles in agriculture and forestry, municipal and industrial use, rail and shipping, and stationary applications, as well as metallic bipolar plates for PEM electrolysers.¹⁵¹ Notably, ElringKlinger's largest individual customer accounted for only 6,2 % of revenue in 2025.¹⁵² ElringKlinger's risk thus lies more in its dependence on the industry than on individual customers.

Approach: technology transfer

Rheinmetall: hybrid plants instead of automotive parts

Rheinmetall is taking the opposite approach: on 3 June 2026, the group signed an agreement to sell its civilian Power Systems division (including Pierburg and Kolbenschmidt, with around 2 billion € in revenue and around 6.250 employees) to AEQUITA for a provisional purchase price of 350 million €.¹⁵³ The Spanish plant in Abadiano remains with Rheinmetall and is being gradually converted to military production.¹⁵³ In Szeged, Hungary, Rheinmetall has opened a “hybrid plant” that combines civilian manufacturing for e-mobility and hydrogen with military electronics under one roof.¹⁵⁴

Approach: plant conversion

Bosch Rexroth: dual-use manufacturing

At Hannover Messe 2026, Bosch Rexroth (revenue in 2025: 6,45 billion €) presented manufacturing and automation technology that can be used for both civilian and defence production.¹⁵⁵

Approach: dual use

What the cases have in common

• Technology before industry. The most successful transfers build on a core competence that is scarce in the new industry: cooling (MAHLE), actuators (Schaeffler), fuel cells (ElringKlinger).
• Acquisitions accelerate progress. Companies seeking substantial revenue quickly make acquisitions (Bosch, Stabilus). For medium-sized companies, this is rarely affordable.
• Partnerships open doors. In defence, many transitions take place through cooperation with major systems suppliers (Hensoldt, Rheinmetall, Diehl), rather than through winning tenders independently.
• Without acquisitions, the share initially remains small. At ZF and Schaeffler, defence business accounts for less than 1 % of revenue (Chapter 3). Higher shares, such as those at Stabilus or Bosch, were also achieved through acquisitions.

12. Barriers to entering a new industry

The barriers are well documented. They lie less in technology than in certifications, production volumes, capital tied up, time, and access to new customers.

Certifications and approvals

Good news for many suppliers: AQAP 2110 and EN 9100 build on ISO 9001; according to e-mobil BW, the additional effort required for AQAP remains manageable where quality management is mature.^8,77 The automotive standard IATF 16949 provides a good foundation but does not replace industry-specific standards. ISO 13485 also explicitly requires a quality manual and numerous documented procedures.⁸²

Production volumes, capital and time

The economics therefore differ from those of the automotive business. Companies accustomed to spreading fixed costs over millions of units must plan for smaller volumes, higher unit prices and longer payment terms in the new industries. Börsen-Zeitung cites better margins and long-term offtake agreements as compensating factors in defence.¹¹⁷

The underestimated barrier: the customer

Sales present an additional challenge: 52 % of suppliers cite the establishment of sales structures and customer networks as a challenge, with the same proportion citing the regulatory framework.³ One reason lies in the structure of the automotive business: orders there arise from enquiries and supplier nominations by a small number of familiar manufacturers and systems suppliers. In the new industries, customers are often unfamiliar, purchasing organisations are structured differently, and decision-making processes are longer. The next chapter describes how access works in practice.

13. Sales into new industries

Alongside regulation, sales are the most frequently cited barrier to diversification. This chapter describes how purchasing organisations in the target industries are structured, where their decision-makers can be met, how B2B buying behaviour has changed, and which legal rules apply to approaching customers.

Routes into purchasing organisations

For most of these routes, companies do not publish processing times. Only the statutory six-month deadline for qualification systems operated by utilities contracting entities is documented. Moreover, applying through a portal is usually only the formal part; whether a supplier is included in a tender depends on whether a buyer or developer knows the supplier in connection with a specific requirement.

Where the industries meet

Sources: Messe Berlin^162,163; Deutsche Messe¹⁶⁴; Solar Promotion/FMB¹⁶⁵; Messe Düsseldorf¹⁶⁶; E-world¹⁶⁷; NürnbergMesse¹⁶⁸; AFCEA Bonn¹⁶⁹; COGES Events¹⁷⁰. Figures provided by the organisers; counting methods differ. For MEDICA, the exhibitor count covers both trade fairs.

New formats specifically bring civilian manufacturing and defence together. In 2026, Hannover Messe introduced a “Defense Production Area” for manufacturing technology for security and defence, explicitly intended to connect suppliers and users.¹⁷¹ DSEI Germany will take place in Hanover for the first time from 9 to 12 March 2027.¹⁷² Admission to Enforce Tac is strictly restricted; component suppliers are admitted as a target group.¹⁶⁸

Matchmaking initiatives

• SVI-Connect: Joint platform of the Federation of German Security and Defence Industries (BDSV) and the Association for Supply Chain Management, Procurement and Logistics (BME). Registration is free of charge, and access is granted following approval.¹⁷³ According to BME, around 500 companies were registered at the end of January 2026.¹⁷⁴
• Industry dialogue organised by the defence and economic affairs ministries: A further meeting on 19 March 2026 brought together over 100 senior representatives from defence companies, suppliers and associations.¹⁷⁵
• Federal states: In Bavaria, Bayern Innovativ has offered TechHUB SVI as an interface with the security and defence industry since 2023¹⁷⁶; North Rhine-Westphalia supports projects through the Defence.Tech.NRW programme¹⁷⁷; regional transformation networks for the supplier industry operate in Baden-Württemberg.¹⁷⁸

How B2B buyers make decisions today

New entrants to an industry encounter buyers who conduct their own research before the first conversation and establish their supplier shortlist early:

For a supplier that is still unknown in the new industry, this presents a twofold challenge: it is not on the shortlist that buyers compile before initial contact, and inappropriate mass outreach does more harm than good. McKinsey also describes a three-way split in interactions: in-person, remote and digital channels are used in roughly equal proportions.¹⁸⁰ An effective approach therefore combines visibility (trade fairs, associations, specialist content), precise target customer selection and targeted, technically substantiated outreach to the appropriate roles in procurement, development and quality.

There are no independent, representative data on the effectiveness of cold outreach for Germany's industrial Mittelstand. Vendor data provide some guidance: the platform Instantly's Cold Email Benchmark Report 2026 found an average response rate to cold emails of 3,43 %; the top 10 % of senders achieved more than 10 %.¹⁸² These figures are based on international platform data and cannot be extrapolated to German B2B industry.

Legal framework for outreach in Germany

• Email: Under Section 7 subsection 2 no. 2 UWG, email advertising without the recipient's prior express consent is prohibited. This also applies to communications addressed to businesses. An exception exists only for existing customers under the conditions set out in Section 7 subsection 3 UWG.¹⁸³
• Telephone: For calls to businesses, at least presumed consent is sufficient under Section 7 subsection 2 no. 1 UWG; for calls to consumers, prior express consent is required.¹⁸³

This section does not constitute legal advice. Whether presumed consent exists in an individual case depends on the circumstances and is shaped by case law.

14. Funding and networks

The funding landscape for the transformation of the supplier industry is changing. The Automotive Industry Future Fund has expired; its successor programme, introduced in January 2026, has completed its first round of outline proposals, and funding is only just beginning. EU instruments are becoming increasingly important for entry into the defence sector.

Programmes change frequently. Before submitting an application, the current status should be checked with the relevant funding body.

TraFoNetz Nordschwarzwald provides an example of the work of regional networks: it received 6,77 million € from the Future Fund; over 90 companies exchange information through the network.¹⁸⁵ The Pforzheim University study on medical technology as a field for diversification, cited several times here, was also published through this network.⁸²

Assess capabilities rather than products and select target industries

Immediate action (0–6 months)

Take stock of capabilities: Which processes, materials and technologies has the company mastered at a level that is scarce in other industries? With regard to defence, respondents primarily cite electronics, mechanics, drive and energy modules, and software (Chapter 3). Select two to three target industries using the overview in Chapter 4: market dynamics, unit volumes, entry requirements and fit with the company's capabilities. Arms production is the most frequently cited target, but it is not suitable for every company; energy and grids, rail infrastructure and data centres offer greater volumes in some cases. Identify the certification gap: Which credentials are missing (AQAP 2110, EN 9100, ISO 22163, EN 15085-2, ISO 13485), and what do they cost? AQAP 2110 and EN 9100 build on ISO 9001 (Chapter 12). Identify specific target customers: systems integrators, their Tier-1 suppliers, grid operators, rail companies and medical technology manufacturers. Register on supplier portals and matchmaking platforms such as SVI-Connect (Chapter 13). Review funding opportunities while they remain available: BAFA funding for consultancy services runs until the end of 2026. Existing regional transformation networks can apply for extensions until the end of 2026; suppliers should use their services now (Chapter 14). Metrics: target industries with a justified fit, a list of named target customers, and a cost and implementation schedule for certifications.

Establish market access before investing in capacity

Establishment (6–18 months)

Set up sales operations for the new industry: with clear responsibilities, a dedicated budget and separate targets. The key account model used in the automotive business is not sufficient when customers are unknown. Become visible where the industry buys: trade fairs (for example, Enforce Tac and DSEI Germany in March 2027), associations and technical articles. Buyers generally draw up their supplier lists before the first contact. Address the buying centre rather than a single contact: target procurement, development, quality and management with arguments relevant to their respective areas of expertise. According to Forrester, 13 internal stakeholders are involved in a typical purchasing decision. Outreach must comply with the rules of Section 7 UWG. Enter through partners: engineering services, subcontracts or personnel partnerships with systems integrators are often the faster route to a first reference project (Chapters 5 and 11). Start certification in parallel, ideally linked to a specific customer requirement. For classified information protection, having a commissioning customer is even a prerequisite. Metrics: qualified initial discussions with target customers, supplier registrations and qualifications, initial samples and pilot orders.

Scale with prudence

Expansion (from 18 months onwards)

Invest when orders are in place: the example of Urban Gruppe shows that capacity without an order base can lead to insolvency even in arms production (Chapter 5). Adjust costing: smaller batches, higher unit prices and longer periods of tied-up capital. Clarify financing with banks or equity investors at an early stage. Adopt a hybrid approach to plants: Rheinmetall's hybrid plants in Szeged and Neuss show that civilian and military production can coexist under one roof. Set a realistic portfolio target: even Schaeffler plans to generate up to 10 % of revenue from new fields by 2035. The aim is a second business pillar that cushions fluctuations in the automotive business. Metrics: share of revenue outside automotive, plant capacity utilisation and margins in the new business areas.